PwCConsultingStrategy Current wars 2.0: A new era of direct electric current is set to transform your world

Current wars 2.0: A new era of direct electric current is set to transform your world

By:
Laurent Saint Martin, Adrian Del Maestro, Guillaume Jean

Published: May 16, 2018

At the end of the 19th century, Thomas Edison, the scientist and inventor, and Nikola Tesla, an electrical engineer and inventor, were both researching how electricity could be transmitted and used. The two men struck out in different directions, with Edison becoming a proponent of direct current (DC) and Tesla focusing on the design of alternating current (AC). The resulting rivalry became known as the “Current Wars.” It was an argument that Tesla eventually won, and AC became the system of choice for transmission and distribution of electricity into our homes to this day. But Edison’s DC system is making a comeback. That’s because of fundamental shifts in the way energy is generated, distributed, and harnessed amid a global push on renewables (solar, in particular) and the emergence of new technologies (especially in batteries and storage).

Electricity generation is becoming decentralized, with distributed generation systems producing power closer to the consumer. Unlike conventional power stations, from which electricity is transported over long distances, microgrids now allow electricity to be distributed locally using DC as well as AC. Microgrids are small technological ecosystems that can supplement or replace a central power grid.

DC’s applications and cost benefits are becoming more tangible. Using proprietary analysis, we have calculated that businesses across multiple sectors could, in aggregate, reduce energy costs — both capital and operating costs — by as much as 30 percent over a 25-year period.

Companies and investors should ensure they have the right set of capabilities and strategies in place to fully capitalize on DC’s benefits.

Four drivers underpinning DC adoption

In this report we have identified four drivers of the adoption and growth of DC.

1. A shift in both electricity generation and customer usage

Electricity generation relies increasingly on so-called decentralized renewable energies — that is, energy generated locally in various ways, including from solar panels, as opposed to power generated at a central location. Moreover, solar panels generate electricity in DC. So, as electricity generation through solar grows — and it grew from 34 terawatt hours (TWh) in 2010 to 253 TWh in 2016, according to the International Renewable Energy Association — so too is the amount of DC power generated likely to grow.

Solar panels do not generate a steady stream of electricity for the obvious reason that the sun does not shine continuously — at least not in all climates. This means that more energy storage will be needed to manage fluctuations in this type of power supply. That’s where storage technology comes in: lithium-ion batteries, supercapacitors, fuel cells, and flow batteries, all of which are efficient for storing DC. Given that production of these technologies is still at an early stage, we estimate that the installed capacity of such batteries is enough to soak up only around 1 percent of all solar power currently generated. The potential for more storage is clear.

In the meantime, everything from LED lighting in homes and businesses to electronics (computers, smartphones) is increasingly being run on DC. Yet thanks to Tesla’s legacy, offices and homes are typically connected to national AC grids. This is why laptops, for example, need an AC-DC converter embedded in a power cable to run on AC. Finally, the growth of microgrids is enabling greater use of DC. Its component parts are solar power, the use of home appliances that can accept DC, and new forms of power storage, all connected by cables. An example of a small microgrid would be a home with features including the ability to use an electric car’s battery to provide current to the home, as well as vice versa (Exhibit 1), and an example of a large one would be a town with facilities and offices connected to such a network. Cofely (a subsidiary of Franco-Belgian group Engie, formerly GDF Suez) and Bosch of Germany are among the companies building DC microgrids specially designed for industrial zones. More are coming.

Electricity is increasingly being sent across national borders in Europe, a process accelerated by liberalization of markets generally. Southern Germany gets much of its electricity from France, for example, requiring efficient transmission over long distances. In China and India, governments are building transmission lines across very long distances to connect communities with power. The same thing is happening in Africa, where similar projects will eventually also connect countries there with Europe.

The technology that works well in this context is high-voltage direct current (HVDC) because DC travels along a transmission line smoothly with minimal energy leakage and loss, in contrast to high-voltage alternating current (HVAC), with which energy leakage and loss is an inevitable by-product of AC’s irregular pulse. With less energy loss, there is also less need to invest in grid stabilization, which is a typical feature of long-distance transmission systems at the moment. Such is the optimism over the potential for HVDC that MarketsandMarkets, an India-based energy research group, expects the installed capacity of HVDC systems to double from its current level of 43 gigawatts by 2022.

Expansion is also expected in charging infrastructure. As adoption of electric vehicles (EVs) grows, so too does the use of DC superchargers — devices that can charge a vehicle battery in a matter of minutes rather than hours. Tesla — the company, not the engineer — is building hundreds of new DC supercharging stations in many countries. The broader deployment of DC charging infrastructure for EVs will reduce the level of power losses typically associated with conversion from AC to DC.

3. New technologies: DC innovation momentum

Technology breakthroughs are creating further momentum for DC. Circuit breakers and medium frequency transformers are generating interest in DC among railway-related businesses, because they save costs and stabilize power networks. Entities interested in them include French transport systems manufacturer Alstom, Swiss engineering group ABB, and the SuperGrid Institute, a collaborative research institute in which GE of the U.S., French utility EDF, and France-based cabling group Nexans are involved.

Moreover, additional innovations in DC cables are leading to more power-efficient EVs and aircraft. Companies such as Microsoft and Facebook have been installing innovative, hybrid AC-DC power systems in many of their data centers and have seen immediate savings in energy consumption of around 20 percent. Such hybrid systems also help to save space, with the same benefit seen in power stations that use DC.

4. Regulatory evolution: Public and private initiatives under way

Governments are starting to recognize the benefits of DC. State Grid, China’s state-owned electricity utility, started work in 2009 on an 11-year plan to build ultra-high-voltage direct current lines that will significantly boost the availability of electricity across the country. Use and expansion of DC was enshrined in the Communist party’s 12th Five-Year Plan, released in 2011. Likewise, U.S. manufacturers that are members of the EMerge Alliance — an open industry association — are setting standards to facilitate the adoption of DC power systems in commercial buildings.

Are you ready for the DC wave?

Section 3The benefits and potential savings of DC apply in a range of industries (Exhibit 2). What’s more, the rise of DC will have an impact across many parts of a business, including research and development, supply chain management, and product development. Indeed, it will fundamentally affect the growth strategy of many companies. As Edison’s vision for electricity transmission makes a decisive comeback, business leaders will need to factor this profound shift in power technology into their thinking. And having a strategic road map (Exhibit 3) is one of several steps they will need to take to ensure they maximize their company’s competitive advantage.

Current wars 2.0: A new era of direct electric current is set to transform your world